Low-cost airline IndiGo has postponed plans to fly to Europe due to profitability issues and uncertainty on the viability of its business model.
While Jet Airways and Air India struggle to chart out their future, even India’s most successful low cost airline IndiGo (in profitability terms) is facing challenges of its own.
The company’s co-founder Rakesh Gangwal had charted out a grand strategy to fly low-cost flights to Europe. But with squeezing margins and rising costs, the airline has put the plan in cold storage for now as confirmed by a source. Currently, IndiGo runs 55 daily flights or 15% of its capacity overseas.
The source stated to ET, “There will be no flights to European destinations in the next six months or even a year. I wouldn’t call it a reversal but plans are always reviewed.” The airline also did not get all regulatory approvals for flights to London, the first destination that Indigo was planning.
Last year, IndiGo had sought approval for flying to destinations like London, Madrid and Paris. Gangwal had exuded huge optimism on Indigo’s potential in low-cost long flights during a conference call with analysts where he commented, “…our internal work shows that IndiGo is a natural player to take advantage of the significant and lucrative international market opportunity that India offers. Specifically, because of our large domestic network, we are well positioned to capture this massive and growing international traffic. It is about time that IndiGo enters the long-haul, international markets and takes advantage of this lucrative opportunity.”
IndiGo had further planned to acquire a stake in Air India to gain access to its international airport slots and flying rights. However, the deal ultimately fell through.
They were also considering locations like Baku (Azerbaijan), Tbilisi (Georgia), Bahrain and Kuwait as potential hubs where they could use Airbus 321 planes. Indigo has entered into its first code sharing partnership with Turkish Airlines in December 2018.
Profitability issues have also weighed on Indigo’s decision, preventing it from going ahead with planned acquisitions of larger planes like the 300-seater Airbus A330 or the Boeing 787 Dreamliners. The double whammy of intense competition and rising fuel prices has hit all airlines equally last year, forcing them to even sell below cost. Interestingly, Indigo has been at the forefront of capacity additions.
Indigo posted its first net loss of Rs 652 crore during the quarter ending September 2018 as compared to a profit of Rs 551 crore during the same quarter in 2017. Per-seat revenue and cash reserves have both showed a decline.
The airline faced another reversal recently when the Directorate General (Civil Aviation) barred it from flying A320 Neos to Port Blair or any overseas destination where an alternate landing place is over an hour away at any point during its journey over the ocean.
The management also faces another key question – whether it will get sufficient demand in Europe for its no frills model. The European market is flooded with competitive offerings from the likes of Emirates and Singapore Airlines.
Moreover, a Parliamentary Standing Committee led by TMC MP Derek O’ Brien rated Indigo as the ‘worst airline’ for customers. While customer dissatisfaction has not affected Indigo’s stature as the market leader in India, it is doubtful whether European customers will be as forgiving!